I’ve had my own thoughts about Snape and Lily but I think Duckula on myspace goes farthest in explaining the Snape/Lily connection. I posted this:

We saw, in the pensieve Lily and Snape in their 5th year. Harry hears from Sirius and Lupin that Lily and James didn’t get together till their 7th year, although James already had a crush on her. I bet that the two best potions students – Snape and Lily were friends in their 6th year and Snape fell in love with her, and his abiding hatred of James is due, more than anything else, to his secret love of Lily.

and Duckula went much further (and it is better thought out too) with this:

I TOTALLY think Snape had a crush on Lily secretly, and that Snape considered her a good friend. I think he often confided in her and talked to her, and she had a way of helping his low self-esteem and making him feel better about himself. We know she was very kind and had a way of making somebody see somebody’s inner beauty, even if they didn’t see it themselves. He really admired her and appreciated her. This is what makes “Snape’s Worst Memory” so important- Snape was used to being bullied by James and Sirius, so why would this particular day be his worst memory? But notice that Lily suddenly came into play, and also that Snape had never once mentioned Harry’s mother! It wasn’t so much that Snape was humiliated in front of Lily nearly as much as the single important fact that he blatently insulted and degraded her- his stubborn Slytherin pride, which had just flared up, maybe even against his will. And notice how she reacted, angry, shocked even. Snape knew that he just had lost the best friend he ever had, and he always hated himself for that… and he also blamed it on James, which would explain why he hates Harry so much. When he looks at him, he sees the woman he lost- both in friendship and in death- and James, who he feels forced him to blurt out such a horrible thing to her, thus causing her to turn away from him, AND who married Lily… who stole him away from her like everything else, his ultimate victory over Snape, and thus deprived him of any chance he would have of redeeming himself in her eyes.I think it was when Snape found out that the two were engaged (I think they got engaged while in their 7th year, probably towards the end, so it was MAJOR talk around the school, seeing as how they were both popular), and it was that which ultimately inspired Snape to turn over to the Dark Side. He know he had a shitty home-life, a shitty school-life (save for Lily), and so this was the straw that just broke the camel’s back. With Lily out of his life, he felt had nothing else to live for, nothing to lose… so he joined the Dark Lord mainly to gain a feeling of belonging, a feeling of acceptance, which would become the other second biggest mistake of his life… because it was on his information as well as Peter’s) that caused the Potters to die. He not only blamed Lily’s death on himself, but on James (because, like I said, it was ultimately his anger and hatred for James taking Lily away from him that caused him to turn to Voldemort, which he ultimately took out on Harry. AND FURTHERMORE, I think another HUGE reason he hates Harry so much is because he knew that Lily could have died if it hadn’t of been for Harry. (I think Snape had a direct role, somehow, in the fact that Voldemort was willing to spare her). Snape probably thought “It should have been her who lived, why couldn’t it have been you who died? She could have lived if it hadn’t have been for you!”But why wasn’t Snape’s worst memory the moment he found out that James are Lily were getting married, or more significantly, when he found oit that Lily was dead? Because that fateful day by the lake was how it all started. It was the day when Lily lost every bit of respect she ever had for Snape. If it hadn’t have been for Snape (and James), he and Lily would never have had a falling-out. They might have had a chance together, seriously, and it might have been them who got married, and Voldemort would never have came hunting her.